Canadian energy explorer Talisman Energy Inc. (TLM) declared its production outlook and capital expenditure budget for 2011.
Talisman expects overall production growth rate of approximately 5% to 10% in 2011, with the BP Colombia acquisition adding incremental output of 12,000 to 15,000 barrels of oil equivalent per day (boe/d). Liquids production is expected to comprise half the total volume coming from North America as well as the North Sea and Colombia shale plays.
Calgary-based Talisman plans to spend $4 billion on capital projects in 2011. About $1.7 billion of the total budget is allocated for North America, primarily for the Eagle Ford shale, conventional oil properties and the Farrell Creek shale play. Expenditures on dry gas has been lowered by 35% from the 2010 level.
A budget of about $800 million has been apportioned for infrastructure development in the Pennsylvania Marcellus play, where production will likely be around 350–400 million cubic feet per day (mmcf/d) and rigs count decreased to 9 for 2011 from 12 last year. Talisman aims to drill about 100 net wells in Marcellus.
In the Farrell Creek area of Montney shale, Talisman along with its strategic partner Sasol Ltd. (SSL) targets to drill 35 net wells and move to an eight-rig program in 2011 from four rigs. Talisman’s contribution to the expenditure would be approximately $100 million against a volume of 50–60 mmcf/d net in 2011.
North America is expected to contribute about 455–525 million cubic feet equivalent per day (mmcfe/d) or approximately 75,000–85,000 boe/d of shale production to Talisman’s total production in 2011.
The company also disclosed plans to spend $1.2 billion in the U.K. North Sea (including $370 million of non-cash capital spending in Norway), about $700 to $800 million in Southeast Asia, and $700 million for international exploration projects.
Talisman expects to generate production of 130,000 to 135,000 boe/d in the North Sea, and 120,000 boe/d in Southeast Asia (unchanged from 2010 levels).
We believe that Talisman enjoys solid base business in Western Canada and the U.K. North Sea. The company is also exposed to some of the most prospective unconventional natural gas plays in North America and high-impact exploration prospects worldwide.
However, the company remains sensitive to volatile oil and gas prices, international business risks and slow global recovery. We are maintaining our Neutral recommendation on the stock.
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